Scott Kupperman

Founder, Kupperman Location Solutions

Stephen Gray

CEO, Gray Construction

Trula Hensler

Senior Marketing Manager, Baker Tilly Virchow Krause, LLP

Healthcare Reform: How Will It Affect Businesses?

Although the healthcare debate is far from over, business leaders would agree that costs must be controlled and the marketplace must become more transparent.

Nov 09

Picture a heavy, off-balance freight train sluggishly weaving through a thick snow storm and you get an idea of how the whole healthcare reform issue is evolving. Lawmakers are attempting to piece together numerous contentious issues to change and, it is hoped, improve one of the largest thorns in the sides of businesses - the U.S. healthcare industry.

On Nov. 7, the House passed - by a very slim margin - the Affordable Health Care for America Act. Under the plan, which would cost $1.2 trillion over 10 years, 36 million uninsured Americans would get coverage.

The 2,032-page bill would require every person to obtain healthcare insurance, and companies to cover their employees, though small business would be exempted. Legislators want to make it affordable by expanding Medicaid, and by creating a marketplace where individuals could receive federal subsidies to buy coverage from private insurers or from a new government-run insurance plan.

Other measures in the House bill include:

• Funding to create insurance exchanges to serve people who don't have employer coverage;

• Up to $400 billion in Medicare and Medicaid cuts;

• A surcharge on taxpayers who earn more than $500,000 a year, or $1 million for families; and

• A crackdown on the insurance industry, including bans on lifetime limits and coverage denials based on preexisting conditions.

The debate now moves to the Senate where, on Nov. 18, Majority Leader Harry Reid (D-Nev.) introduced an $848 billion plan. The Senate plan would include a government-run health plan as an option for those buying coverage through newly created insurance exchanges. The bill, which built on measures passed by the Senate Finance and Health committees, would allow states to "opt out'' of the public plan."I think it's the fairest way to go," Reid said. "A public option can achieve the goal of bringing meaningful reform to our broken system."

What's Next?On Nov. 21, the Senate majority won a key procedural vote to bring the bill to the floor by the narrowest of margins, 60-39. Debate on the Senate bill is expected to begin on Nov. 30. If the Senate passes its final bill, both the House and Senate will need to meet to resolve the differences between their two bills. The result is a Conference report, which must be approved by the House and the Senate. The final legislation will then go to President Obama for his signature.

Still high on the list of contentious issues, in addition to whether the public option should include an "opt out" clause for states, is whether to fine people who do not purchase insurance, and whether to require employers to offer coverage to their workers.

President Obama and Democratic leaders insist that a bill must pass this year to address spiraling healthcare costs that are threatening economic stability. Republicans and many business owners say that they accept the need to reform aspects of the healthcare system, but oppose the overhaul proposed by Democrats as too broad and costly. Employers worry that tax increases to pay for the program will cost more in the long run than what they are paying for their employee benefits now. Additionally, there is fear that costs could rise, at least in the short term, if employees migrate to a public plan and leave fewer contributors to the company's private plan.

"Big government doesn't mean better healthcare," said Rep. Kevin Brady (R-Texas). "This is all about taking a giant first step toward a single-payer national healthcare system. Washington will ultimately decide what doctors you can see, what treatments you deserve, and what medicines you receive. And when you're sick, will you be worth their cost?"

Both parties do agree on major aspects of healthcare reform, such as capping consumers' annual out-of-pocket expenses for healthcare and halting insurance company practices of denying coverage for pre-existing conditions. They also agree on creating incentives for preventive healthcare to help lower overall costs.

How Will Businesses Be Affected?Five consecutive years of double-digit premium increases have hit the business community hard, especially smaller firms.

According to National Association of Manufacturers (NAM) Executive Vice President Jay Timmons, any healthcare reform needs to enable employers to continue offering flexible health benefits without increasing the cost of doing business. Since 1999, employer-sponsored health coverage premiums have increased by 119 percent, says Timmons, placing increasing cost burdens on employers and workers. Costs are soaring out of control, and these rising costs limit employers' ability to re-invest in their business. "We are committed to healthcare reform that will create efficiencies and make manufacturers more competitive in the long run," said Timmons.

Laura Narvaiz, spokesperson for NAM, adds, "About 97 percent of manufacturers offer healthcare coverage as a benefit, and we are constantly hearing from members, especially the smaller ones, that the skyrocketing cost of healthcare is hurting them."

Large aerospace manufacturers, for example - such as Northrop Grumman Corp., Lockheed Martin Corp., and Rockwell Collins, Inc. - have seen the cost of their healthcare benefits increase yearly at more than twice the rate of inflation. Smaller aerospace companies have seen their costs rise even faster, as they have fewer employees to share the burden and fewer healthcare plan options. Furthermore, many of these companies are not designated "defense contractors," so unlike their bigger neighbors, they don't qualify for federal assistance on pensions.

In recent testimony before the House Committee on Education and Labor, on behalf of the U.S. Chamber of Commerce and the Rochester Business Alliance, Paul S. Speranza, Jr., vice chairman, general counsel, and secretary of Wegmans Food Markets, Inc., noted, "The Chamber does not believe that a mandate on employers to sponsor health insurance will make serious headway to cover the uninsured, but rather could lead to a loss of jobs." He added, "Employers who cannot currently afford to offer health insurance benefits will not be able to do so simply because they are mandated to do so - small employers, seasonal employers, and businesses that operate on very small profit margins will still be unable to afford to provide benefits."

According to Speranza's testimony, "A better, smarter approach would be to focus on bringing down the costs of health insurance, and encouraging individuals to obtain coverage. This would bring market forces to bear on employers, as their employees would ask anew for benefits that satisfied their individual requirements, without hurting the economy - while also helping more people to obtain insurance and making healthcare more affordable for all."

What About Small Businesses?Jim Wordsworth, president of J.R.'s Goodtimes, Inc., and the owner of several small businesses, recently testified before the House Committee on Small Business on behalf of the U.S. Chamber of Commerce. According to his testimony, "The biggest barrier that prevents small businesses from providing health benefits to employees is the cost of insurance.However, Congress is also considering some changes that will be extremely beneficial to small businesses almost immediately. Among these is fair regulation of insurance companies through the creation of a national health insurance exchange (`the exchange').

"According to the U.S. Chamber of Commerce, the exchange could be a powerful tool for connecting individuals and small businesses with insurers, and helping them to shop smart and find the best-fit policies. Wordsworth testified, "All sizes of businesses should be allowed to participate in the exchange, if they choose to, and it should include pooling arrangements that help spread risk and give maximum leverage to consumers and small business."

Another concern for small business is the creation of a mandate that employers sponsor insurance coverage for employees, or be forced to pay into a fund.

"The idea that an employer mandate will increase coverage is illusory, because new rules will not change financial realities for small businesses," Wordsworth testified. "Worse, a mandate could cost hundreds of thousands of jobs, could prevent businesses from hiring new workers, or could increase outsourcing and company restructuring in efforts to avoid the mandate. This would have the opposite of the desired effect, reducing coverage rather than increasing it."